Credit Suisse Metals and Mining
Super as the new normal
August 2012
Paul McTaggart, Research Analyst
Paul.McTaggart@Credit-Suisse.com
August 2012
DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do
business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision.
Commodity Super Cycles
Credit Suisse Commodity Index (real, USD)
200
180
160
140
120
100
80
60
40
20
0
Source for all: World Bank, Reuters, Credit Suisse
Credit Suisse Equities (Australia) Limited
August 2012
2
Commodity prices are linked to global GDP growth
8.0%
7.0%
GDP forecasts
Global GDP, real ann trend qoq
GDP avg (1972-2012)
CCI Index, real trend qoq (rhs)
9.5%
CCI avg (1972-2012, rhs)
7.5%
6.0%
Global
GDP
forecast
5.0%
5.5%
3.5%
1.5%
4.0%
-0.5%
3.0%
-2.5%
2.0%
-4.5%
1.0%
0.0%
1990
-6.5%
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
-8.5%
2014
Source for all: Reuters, Datastream,Credit Suisse
Credit Suisse Equities (Australia) Limited
August 2012
3
Origins of the current Cycle
Growth is investment led
Asia increasingly drives global GDP growth
8%
6%
4%
2%
0%
-2%
-4%
1990
1995
Asian Contribution
2000
2005
US & EU Contribution
2010
World GDP Growth
Consuming most of the worlds commodities
With a long way to go
Source: Bloomberg, Datastream, Credit Suisse
Credit Suisse Equities (Australia) Limited
August 2012
4
But China is slowing
Fixed Asset Investment growth moderating
Export markets also not set for revival
80
130
Expansion
70
120
60
110
50
100
40
90
Contraction
80
30
70
20
2005
2006
2007
2008
ISM New Orders (LHS)
Reducing Industrial Activity
50
21
45
40
19
Year on Year Gth, %
30
15
25
13
20
11
15
9
10
7
5
5
1997
0
2003
IP Gth, LHS
2005
2007
2009
Year on Year Gth, %
35
17
2001
2010
2011
Japan PMI
2012
IFO Exp. (RHS)
Causing capital to look elsewhere for opportunities
23
1999
2009
250
200
150
100
50
0
-50
-100
-150
-200
1997
1999
2001
2003
2005
2007
2009
2011
2013
2011
China indicator, RHS
Trade Balance
FDI
Hot Money
Change in FX Reserves
Source: China Bureau of Statistics, Peoples Bank of China, Datastream, Credit Suisse
Credit Suisse Equities (Australia) Limited
August 2012
5
New projects are expensive
Global Copper Capex Intensity
Global Zinc Capex Intensity
Global Iron Ore Capex Intensity
Australian Resource Intensity (completed projects)
25,000
1,000
900
800
700
600
500
400
300
200
100
0
20,000
15,000
10,000
5,000
Apr-12
Oct-11
Apr-11
Oct-10
Apr-10
Oct-09
Apr-09
Oct-08
Apr-08
Oct-07
Oct-06
Apr-07
Oct-05
Apr-06
Oct-04
Apr-05
Oct-03
Apr-04
0
Total capital cost of projects ($millions)
Average capital cost of projects ($million)
Source: Brook Hunt, BREE, Credit Suisse
Credit Suisse Equities (Australia) Limited
August 2012
6
Providing a new level of cost support
2000 Copper C1 Cost Curve ($/lb)
2012 Copper C1 Cost Curve ($/lb)
2000 Nickel C1 Cost curve ($/lb)
2012 Nickel C1 Cost Curve ($/lb)
Source: Brook Hunt
Credit Suisse Equities (Australia) Limited
August 2012
7
Iron Ore
Spot Price (US$/t)
World Steel Production
1000
200
800
150
600
100
400
50
40%
120
30%
100
20%
80
10%
60
0%
40
-10%
20
-20%
0
-30%
MB (63.5% FE)
Steel (HRC), CFR China (RHS)
China Steel
Jan-12
Jan-08
Jan-06
Jan-10
World % chg YoY
Jan-12
Jul-11
Jan-11
Jul-10
10%
Jul-09
0
Jan-10
15%
Jul-08
10
Jan-09
20%
Jan-08
20
Jul-07
25%
Jan-07
30
Jul-06
30%
Jan-06
40
Jul-05
35%
Jul-04
50
Jan-05
40%
Jul-03
60
Jan-04
45%
Jan-03
70
Fe units imports
Western world steel
Cost Curve (US$/t)
China Imports vs. Domestic Production
Fe units domestic ore
E Europe/CIS steel
Jan-04
2012
Jan-02
2011
Jan-00
2010
Jan-98
2009
Jan-96
2008
Jan-94
2007
Jan-92
0
Jan-90
200
0
2006
Fe units (mt)
140
1200
Raw steel output (mt)
250
Implied China grade (rolling 12 month)
Source for all: Credit Suisse, Reuters, Metalytics, Bloomberg
Credit Suisse Equities (Australia) Limited
August 2012
8
Coking Coal
Contributors to seaborne demand supply (Mt)
Spot Price (US$/t)
Australia
30
RoW
500
450
20
400
350
10
US$/t
300
250
0
200
-10
150
100
-20
50
Australia (FOB)
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
0
-30
2011
2012
2013
2014
2015
China Domestic (ex. VAT)
China Met Coal Cost Curve (RMB/t). 1 USD ~ 6.4 RMB
Cash costs ($US/t)
Seaborne Met Coal Cost Curve ($/t)
Production (mt)
Source for all: Credit Suisse, China Customs, Bloomberg, Anglo American, Brook
Hunt
Credit Suisse Equities (Australia) Limited
August 2012
9
Thermal Coal
China Net Imports(Mt)
30
240
220
200
180
160
140
120
100
80
60
40
20
0
25
Imports/(Exports) (Mt)
20
15
10
5
0
-5
Australia (Newc, FOB)
China (QHD, ex-VAT)
Series3
Imports
Jul-11
Jan-12
Jan-11
Jul-10
Jul-09
Jan-10
Jan-09
Jul-08
Jan-08
Jul-07
Jul-06
Jan-07
Jan-06
Jul-05
Jan-05
Jul-04
Jul-03
Exports
Thermal coal net imports
Seaborne Thermal Coal Cost Curve ($/t)
Cash costs ($US/t)
Annualised US coal exports
Jan-04
-15
Jan-03
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
-10
Jan-05
US$/t
Spot Price (US$/t)
Production (mt)
Source for all: Credit Suisse, China Customs, Bloomberg, McCloskey Coal, Brook Hunt
Credit Suisse Equities (Australia) Limited
August 2012
10
Copper
China Demand outlook
900
450
800
400
700
350
600
300
500
250
400
200
300
150
200
100
100
50
LME stocks
SHFE stocks
COMEX stocks
Jun-12
Dec-11
Jun-11
Dec-10
Jun-10
Dec-09
Jun-09
Dec-08
Jun-08
Dec-07
Jun-07
Dec-06
Jun-06
-
Dec-05
-
Price (US¢/lb)
Stocks (kt)
Spot Price and stocks
LME Price
Chilean Copper Production
2012
530
2011
Cost Curve ($/t)
2004-2010 Avg
2012 Days Adjusted
8,000
Current LME Cash +
$220/t Premium: $7508
510
6,000
490
470
4,000
90%:
$3,185
450
2,000
430
410
0
390
370
-2,000
350
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
-4,000
Source for all: Credit Suisse, China Customs, Bloomberg, Brook
Hunt
Credit Suisse Equities (Australia) Limited
August 2012
11
Nickel
Spot Price and LME stocks
30
60
25
50
Stocks (kt)
120
20
100
15
80
60
10
40
5
Price (US¢/lb)
140
Apparent consumption (kt)
160
360
330
300
270
240
40
210
180
150
120
90
60
30
30
20
10
20
-
2005
2006
2007
2008
LME stocks
2009
2010
2011
0
2004
0
2005
2006
China Nickel Production
LME Price
Chinese Nickel Ore Imports
Stainless Steel Production
China Apparent Demand
180
2007
2008
2009
Nickel + alloy imports
2010
2011
2012
Stainless steel products
Nickel Cost Curve
7,000
Imported Ni DSO (kt)
6,000
5,000
4,000
3,000
2,000
1,000
2008
2009
2010
Phillippines
2011
2012
Indonesia
Source for all: Credit Suisse, Bloomberg, Brook Hunt
Credit Suisse Equities (Australia) Limited
August 2012
12
Disclaimers
This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other
jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG, the Swiss bank, or its
subsidiaries or its affiliates (“CS”) to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated
otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other
party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered
trademarks or service marks of CS or its affiliates.
The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the
solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in
this report are suitable for any particular investor. CS will not treat recipients as its customers by virtue of their receiving the report. The investments or services contained or
referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments
or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or
appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you. CS does not offer advice on the tax consequences of investment
and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change.
CS believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in the other sections of the
report were obtained or derived from sources CS believes are reliable, but CS makes no representations as to their accuracy or completeness. Additional information is
available upon request. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the
extent that liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS
may have issued, and may in the future issue, a trading call regarding this security. Trading calls are short term trading opportunities based on market events and catalysts,
while stock ratings reflect investment recommendations based on expected total return over a 12-month period as defined in the disclosure section. Because trading calls and
stock ratings reflect different assumptions and analytical methods, trading calls may differ directionally from the stock rating. In addition, CS may have issued, and may in the
future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different
assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other reports are brought to the attention of
any recipient of this report. CS is involved in many businesses that relate to companies mentioned in this report. These businesses include specialized trading, risk arbitrage,
market making, and other proprietary trading.
Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future
performance. Information, opinions and estimates contained in this report reflect a judgement at its original date of publication by CS and are subject to change without
notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial
instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in
securities such as ADR’s, the values of which are influenced by currency volatility, effectively assume this risk.
Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of
understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors
(including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference
issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional
advisers as to the risks involved in making such a purchase.
Some investments discussed in this report have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses
when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of
initial investment, in such circumstances you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in
consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to
sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed.
This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed
the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS’s own website material) is
provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following
such link through this report or CS’s website shall be at your own risk.
This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is
regulated in the United Kingdom by The Financial Services Authority (“FSA”). This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited
Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States by Credit
Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Canada by Credit Suisse Securities (Canada), Inc.; in Brazil by Banco de Investimentos Credit Suisse
(Brasil) S.A. or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in
compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instrument Firm, Director-General of Kanto Local Finance Bureau
(Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Securities Investment Advisers Association, Type II
Financial Instruments Firms Association; elsewhere in Asia/Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit
Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited , Credit Suisse Securities (Thailand) Limited, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit
Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited regulated by the Securities and Exchange Board of India (registration Nos. INB230970637;
INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House,Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777,
Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities
(Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei
Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit
Suisse Securities (Malaysia) Sdn. Bhd., to whom they should direct any queries on +603 2723 2020.
In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation,
which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements.
Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to
effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S.
Please note that this report was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not
market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on
this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are
not regulated by the FSA or in respect of which the protections of the FSA for private customers and/or the UK compensation scheme may not be available, and further
details as to where this may be the case are available upon request in respect of this report.
Any Nielsen Media Research material contained in this report represents Nielsen Media Research's estimates and does not represent facts. NMR has neither reviewed nor
approved this report and/or any of the statements made herein.
If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of
that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute
investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and
employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content.
Copyright 2012 CREDIT SUISSE AG and/or its affiliates. All rights reserved.
Credit Suisse Equities (Australia) Limited
June 2012
13